諾和諾德 (NVO) 2011 Q3 法說會逐字稿

Welcome to this [webcasted] investor presentation here in London after the first nine months results for Novo Nordisk.

Of course, the agenda has been laid out as we normally do.

I'm very happy that Kare, our COO, is here in London with us today so we have an opportunity of hopefully also in the Q&A session to dig a lot into the R&D, a lot into the operations side.

We have Mads Krogsgaard Thomsen here, our CSO, who will cover the R&D, and then I'll get back in the end and discuss financial and outlook, and of course also having the opportunity to discuss what is Novo Nordisk outlook for 2012 and what are the assumptions used for making them.

We'll try to see whether we can do it in 20 minutes, so it will be rapid.

This presentation will contain a lot of forward-looking statements, and these are listed here, and I'll ask you to read this with care.

It's difficult to make, in this environment, predictions about the future, and not only making predictions about 2011 but also for 2012.

If you look at the first nine months, we were having a positive development in our sales, 11% year-to-date in local currency, 8% reported.

Victoza sales reached almost DKK3.9 billion year-to-date and growth of almost 200%.

We continue to have a negative impact from healthcare reforms for the first nine months.

It's approximately 2.5 percentage point negative impact.

We're very pleased to announce that we have filed Degludec for approval and Degludec Plus, the combination of Degludec with insulin aspart, and it's not only been filed for approval in Europe, in US also, in Canada and Switzerland.

And we'll continue with aggressive filing of this product throughout the world as we move forward through '11 and '12.

Levemir was approved here in Europe as add-on therapy to Victoza, and we are also pursuing a similar indication in the US.

FlexTouch is our new pen that we're also going to use for the rollout of Degludec and Degludec Plus, and it's been launched here in the UK, filled with NovoRapid.

Our financials showed a steady development with a 12% reported increase.

On a local currency basis it was 18% growth.

And if we look at it on a earnings per share basis, it was increase of 22%.

We have given outlook, as listed here, and the focus has been on 2012 outlook, which is basically stating that we expect high single digit growth in local currencies in sales, and close to 10% growth in operating profit, also in local currencies.

And with that, Kare, over to you.

Thank you, Jesper.

As you see here, we have the majority of sales in diabetes, probably a small surprise to any of you.

And you can also see that the main growth drivers are the modern insulins and Victoza, with roughly half the growth.

And then we have actually other products growing quite nicely.

That is our Vagifem in the US that's the key driver of that, but of course it's a smaller product.

When we look at the regions, then we have, you could say, couple regions that are having very strong underlying growth coming from demographics, that is in China and international operations.

Then we have North America, where the value and value share of the diabetes market is still expanding.

We have Europe, which is sort of -- in a very sort of low dynamics, negative outlook situation, and we have Japan, where Victoza is contributing nicely to the growth pattern.

But overall, it's North America, international operations and China that are really driving the growth.

As you all know, the diabetes market has been switching more towards biologics.

We see insulins and DLP-1s being a class that's growing strongly, and we see the OED class growing a little less.

You can see here how we've now come to a 24% share of the total diabetes care market in value.

You also see how Takeda, due to their sensitizer access going down, and how Merck is growing strongly based on the success of their DPP-4 inhibitor.

Global insulin volume growth is always volatile when you look at individual regions and so on.

But if you look at it from sort of (inaudible) perspective and you average it out a little, it is, as we've said for the past 20 years, always 5%-plus.

And right now it's actually standing at 6.8%.

And of course there are big swings regionally.

And as we progress into the future, of course the big populations of China and IO will mean that these areas will become an ever-increasing share of total insulin volume worldwide.

We are maintaining our position in the US modern insulin segment.

We have lost a little bit of share in the human insulin market.

That is, of course, a much, much smaller market, and a dying market in the sense it's the old products.

But Lilly has been out doing some very, very low pricing in human insulin.

I think they get more revenue than profits.

For sure their worldwide profit pool in insulin is really modern insulins and not human insulins.

But we will, of course, ensure that our volume shares remain stable and not give away even that low end of the market.

You can see here our scrip data on modern insulin products in the US, basically no dramatic changes there, steady increase for Levemir, and a more or less stable situation for NovaLog and NovaLog Mix.

Victoza continues to do extremely well and has overtaken exenatide in all markets.

And in the US we have a situation where most of the patients now are using the high dose, the 1.8, and that they're also coming in in the early phases of type 2 diabetes, the way we would like it.

The way we positioned Victoza is, of course, after metformin failure because that is where you get, by far, best efficacy and the longest stay time on the product.

There's a mixed sort of set of performance in Europe.

Everywhere it's growing very nicely.

What is mixed is more or less the label of GLP-1 penetration, Germany, where we are at 4% of the market being GLPs, France, where we are up to 9% now.

This is not really anything to do with the perception of the product.

It's perceived very well everywhere.

It's more to do with the structure of the reimbursement system and the healthcare system, and those hurdles that those systems operating for new, innovative drugs.

Victoza I'm pleased to say has just launched in China, so we are broadening all the time the global reach of Victoza.

We've also launched in several countries in Southeast Asia, Latin America and so on, and we will pursue new launches next year also.

So this is very positive for the long-term growth prospects for Victoza.

And then I think we are on to Degludec and Degludec Plus and filings, and that's over to you, Mads.

Thank you, Kare.

Yes, I think it's something you're all aware of, the notion that we, in the late week in September, submitted both the new drug applications for Degludec and its sister product, Degludec Plus, a fixed ratio combination product with insulin aspart.

And just to kind of update you on the notion that we know that in the US you are expected to have a PDUFA action date of 10 months later after the submission time.

We haven't received that official information at this point, but that is the standard PDUFA review time whereas, in Europe, we have this situation where the clock stops every time the sponsoring company goes into a responsive mode to either generate new data or respond to queries from the rapporteurs and the co-rapporteurs working for CHMP in Europe.

And that means that a European approval time on a good day is close to one year whereas, on a very good day, it's 10 months in the US.

But we also know that a lot of things can happen in that regard, and we'll keep you updated as the process progresses.

In Japan, we are very eager to submit Degludec as well, and that will happen towards the end of this year.

But for reasons of the way the [Doshe] is composed, the Degludec Plus submission will be slightly later, i.e.

in the first half of next year.

And standard review is called or set to be one year, albeit it typically does take a longer time in Japan.

As I said, we will keep you posted on this, for us, extremely critical regulatory process of these two strategic products.

Now, other than that, I think we heard Jesper say that Levemir has got some new indications, both in terms of product add-on to Victoza but also being the only basal insulin that can now be used in kids all the way down to two to five years of age with type 1 diabetes in Europe.

The FlexTouch is strategically important to us since this is the next-generation prefilled device for use with both insulins, growth hormone, potentially GLP-1s, et cetera.

And with its easy-touch dosing mechanism, it has proven itself to be superior in the clinical trials that will be published in the time to come.

Finally for me, on hemophilia, we unfortunately, and not surprisingly, based on the data we saw in phase II, and that we gave you at the half-year result, have decided to discontinue the long-acting Factor VII derivative for prophylaxis in inhibitor patients.

When that is said, Vatreptacog alfa, the on-demand [Nuvo 7] successor molecule, is well on the way to phase III and recruitment trajectory is looking good.

N8-GP, the long-acting version of Factor VIII, is currently -- has completed phase one and in the phase II trial negotiations with the agencies.

And we are happy to announce that we will enter a phase IIIa program globally starting in the first half of next year.

I'll be happy to shed more light on that later if need be.

With that, over to Jesper on the healthcare reform situation.

Thanks, Mads.

This is an update on the slide we also showed you in connection with half-year, and unfortunately we've had to add also China healthcare reform onto the slide.

I think it was actually announced, the Chinese healthcare reform, the exact date we were on road show in London at the half-year results.

We've seen an impact from healthcare reform in the US, quite significantly having a negative impact on our [turnover] in the US in the magnitude of 4%, 4.5%.

We've had a negative impact from the European healthcare reforms occurring this year having a negative impact on our European [turnover] in the magnitude of 2% to 3%.

We've had a negative impact from the Chinese healthcare reform occurring here in third quarter, and there's been effects both of recurring and a nonrecurring basis as we alluded to at the half-year road show.

This is impacting the human insulin sales and NovoNorm sales in China, which constitute approximately two-thirds of our Chinese turnover and negative recurring impact from these healthcare reforms, and that turnover in the magnitude of around 3%.

Turkish healthcare reform was enacted at the start of the year and has been a negative impact on our Turkish business, which is a business that is close to DKK1 billion per year, a negative impact in prices of around 10%.

So overall, there has been a very substantial impact from healthcare reforms around the world, and we estimate that, after the first nine months of this year, it has had a negative impact of Novo Nordisk turnover of around 2.5 percentage point, and for the full year it will be in the 2% to 3% range.

We'll then move on to the financial results, key comments to make.

First, gross margin, we've seen a 40 basis point decline in our gross margin in 2011 over 2010, a reversal of the trend we've seen in prior years.

Do note that there is a significant negative currency impact here of around 60 basis point, but still the underlying improvement of 20 basis point is lower than what we've seen in previous years.

We estimate that the full year improvement in gross margin will be slightly improved to a level of close to 50 basis points, and then it will speed up going into next year and beginning to see a more significant impact from a higher proportion of our overall sales coming from Victoza.

And a consequence of that, we expect next year's improvement in local currency terms from gross margin, everything else being equal, to be in the ballpark of 50 to 100 basis points.

In terms of selling and distribution costs, a slightly lower level than last year, really reflecting that there has been no significant product launches in 2011, whereas 2010 marked the launch of Victoza in the US.

Sales and research and development costs have been, you could say, suffering from the completion of Degludec and Degludec Plus trials, and then there's a number of trials which have started up in the second half of this year.

So our guidance for R&D is now only in the ballpark of 14% to 15%, but it's, however, not a sign of having a continuous low level of investment in Novo Nordisk.

I would be disappointed if we're not -- longer term we're able to move back over 15%.

Administrative costs continue to improve in percentage of sales, and we're now down to 4.8%.

And we should continue to be able to deliver a gradual small basis point improvement in admin costs to sales ratio.

Tax rate is stable compared to last year, and I would also be reasonably comfortable at the same tax level rate looking into 2012.

So overall, this gives an EPS growth of 22% year-on-year.

I think that's a very satisfying level for Novo Nordisk.

If you look at the currency, do bear in mind that the outlook was given based on the rates we had in Denmark on -- was it -- it was Monday, I think.

And as you can see here, the rate has since then, and following the solution to the European debt situation, actually improved somewhat for the euro, so a slightly high level of currencies versus the Danish kroner used as current rate for the [prediction] both for '11 and also for the 2012 [prediction].

Hedging levels are at the ballpark of 12 months forward.

The guidance here, I don't think I will belabor that.

That's the guidance you see for 2011 is in the Company announcement.

You all know that.

The comment here to make would probably be that in addition, of course, we've made the guidance for 2012 and said that we expect high single digit growth in sales, and we currently, at the rate just showed before, we were looking at a currency impact to be impacting by around half a percentage point in 2012.

So overall, and before we move on to questions -- and I think we managed to do it in under 20 minutes -- we have a very solid market performance, yet another quarter with 10%-plus growth from Novo Nordisk.

And of course, that continues to be driven by a overall world diabetes care market that grows by more than 10%.

We have a 24% global market share in diabetes care, and we have a leadership position that is gradually expanding, primarily driven by Victoza.

We have a 50% volume share in insulin, and we have leadership positions around the world.

We have a 46% modern insulin volume share, and we have now also taken market leadership with a 54% DLP-1 value share, and that leadership position is expanding as we speak.

We're the only company who has two new insulins submitted for approval both in Europe, in US, in Canada and in Switzerland, as Mads alluded to.

We have a broad portfolio of DLP-1, which offers the opportunity of expanding further into type 2 and also, as a product with liraglutide, establish a presence within obesity.

And finally, the full portfolio of hemophilia activities we have offer Novo Nordisk the opportunity of not only being a niche player in the inhibitor segment within hemophilia but actually being a broad-based player in both hemophilia A and hemophilia B in addition to the inhibitor segment.

So with those comments, then I'll try to lead the Q&A.

We have to make sure that we get the mic to the one posing the question, and I'll have to ask you state your name and the company you represent, and then we'll have to also get a mic to the ones of us who will respond.

If we start here with Jacob?

Thank you, Jacob Thrane from Standard & Poor's, S&P, Capital IQ as we're called now.

Just two questions.

Can you add a little color to sort of the US healthcare reform?

What is it the pressure is consisting of?

Are we seeing formulary pressure?

Is it pricing pressure, the manufacturing fee and so forth?

It seems that the numbers are a little higher than we [had] spoken about earlier coming into 2012, and just wondering if there's sort of anything that's surprising to that.

And then just for perhaps almost housekeeping, sales and distribution costs coming in with the potential launches down in 2012, what kind of cost margin are we looking at?

Because there seems to be declining a bit now, and are we going to see ramp-up costs for Degludec launches, or will we see basically the sales reps piggybacking that?

Thank you.

Okay.

Thanks, Jacob.

Kare, why don't you give a shot at both the healthcare reform and the [S&T] ratio?

Yes, and I'll start with addressing the US healthcare reform.

And there are no new elements that have surprised us in any way, so the fact that we see of the US healthcare reform are all the elements that we had planned for for this year, so basically no surprises.

We still have a level of uncertainty on the actual calculation of the rebates, and this is due to the technical nature of this.

One of the elements we have to do is we have to, you could say, reimburse the government for what's called the donut hole.

That's when you sort of have had coverage, then there's a period where you don't have coverage, and we had to cover some of that cost.

By nature of that, it's not linear over the year because the patients start out the year with a certain allowance, and then the pharmaceutical sector will only be hit by these rebates once you get to the threshold where this donut hole, or reimbursement hole gap, occurs.

So therefore it's difficult to estimate precisely.

So what we've had to do is of course, on an ongoing basis, make the best possible correct estimates of what the rebates will be, and maybe be, I will say, prudent and conservative in the way we do it because it is uncharted territory to calculate some of these rebates.

And that also goes for some of the other rebates with less uncertainty, so I would say that there are no new elements and there are no surprises, and it's all a question of how is exactly going to pan out technically.

Then on the sales and distribution costs, it is so that you see a pattern where we are, of course, investing in US, IO, China, and we have low dynamics in Japan and Europe, so there of course we don't invest much because doesn't really make sense to invest if you don't get a payback.

So there there's very limited growth in sales and distribution costs.

When we talk about launches, such as Degludec coming up, what you should expect is we will do it somewhat similar to what we did on Victoza, so you will see a very strong push of the product just at launch with the full diabetes sales force, and then we will reverse back to a mixed promotion pattern.

The exact promotion pattern we need afterwards in steady-state.

Would have to be adjusted based on the, you could say, ongoing success of Victoza, our modern insulins, and Degludec.

I would suspect that you will see some modest increases in the ratio in the US, but probably no real changes in Japan and Europe.

And maybe, Kare also, while being on healthcare reform, I think Jacob also hinted, too, in his question how do you see any second round in the US?

Any comments to that?

Yes.

That is, of course, a political guessing game, you could say.

We have this super-committee that is supposed to address the budget deficit in the US.

It's a bipartisan 50-50 split committee.

And if they don't agree to anything, there's going to be sort of a, I guess you could call, the haircut on all government spending in the US, which will not be bad for us.

If they should come up with some draconian price rebate measures, I think it's unlikely because it's not really something that is on the political agenda for the Republicans.

So my personal assessment of the likelihood of a major additional healthcare reform in the US is relatively low, but it's definitely a risk that exists.

Hi, Julie Burke from Oppenheimer Funds.

Lilly announced that they lost a contract to CVS in the US, and I'm wondering if you can give a little color.

They said they lost it to you, and I'm wondering if you can give color in terms of the negotiations or what the -- just any details on that contract would be great.

Yes, I can address that question.

It is so in the US, of course, that there are many managed care organizations and there are many different contracts, and CVS is one out of very many.

And there's always the tough negotiations with these contracts.

That's been the case as long as I can remember the last 10, 15 years.

And you could say that, Lilly, they won a couple of contract end of last year, beginning of this year, by bidding maybe a little more aggressive than we've been used to.

And of course, we don't have any intentions of, you could say, giving up volume in the insulin space anywhere in the world.

So we are negotiating as good as we can, and as we've been doing over many years, and you win some, you lose some.

But on average, I expect that the proportion that we win will be pretty stable, going forward.

And we won this one.

Hi, thanks.

Richard Vosser, JP Morgan.

Just to follow up on the super-committee, is it right that they won't actually implement anything until 2013, and therefore that's why it's not in your guidance?

Could you just confirm that is your thinking?

And then, secondly, just on China, I think you've lost a couple of percentage points of share in China in the modern insulin space to potentially Sanofi's Lantus, and just wondering what you can do here to negate this loss before Degludec Plus is launched in China.

Thanks.

Okay.

I'll deal with the assumptions behind the 2012 forecast, and then Kare will revert on the market situation in China.

What we used for making the outlook for 2012 was all known healthcare reform.

That is what we can kind of use as [safe ground].

I think it is probable, as you said, that whatever measure that's going to be implemented in the US, knowing that the super-committee will only report next month, I think it's highly probable that it will only have an impact from '13, but it's not a second-guessing on what the super-committee will do and what it will end up with that has made us made that assumption in the outlook for 2012.

It's basically just using the assumption.

We include all known healthcare reforms, and then we will have to take it from there.

And then I would say, for Europe, we have assumed that we will have a similar impact on prices in 2012 as we have had in 2011, so it's more -- it's a broad-based continuation of the negative pricing impact we've seen in Europe in 2011 going into 2012.

So that's the reforms.

Kare?

Yes.

And with regard to modern insulin market shares in China, we have a situation in China which in some ways resemble the rest of the world, where we're leaders in fast-acting and premixed modern insulins, and where Sanofi is the leader in the long-acting segment with Lantus versus Levemir.

There's a little twist to the Chinese market because there's a much lower use of basal insulins in the Chinese market than the rest of the world, and this is really not changing in any dramatic way.

But you should expect us to lose a few share points, going forward, because our position in the basal segment, until the launch of Degludec in China, will resemble what we see in the rest of the world with Sanofi.

You're talking low single digit market share numbers here.

Jo Walton, Credit Suisse.

In your guidance you're looking for roughly the same level of sales growth next year as this year.

But this year has been hampered by healthcare reforms, which in many cases should be annualizing out as we go through next year.

What additional pressures do you think may come to replace that such that we won't see an acceleration in your top line?

And can you also talk a little bit about your phase III program in hemophilia, the sort of number of patients that you're going to need, how quickly you think it will take to recruit those, and how long the studies may have to be?

Yes, very good question.

On the effects in the coming year of healthcare reforms, the way it works is that we have them sort of happening on a continuous basis, and that's been the case for quite a number of years.

And actually I think healthcare reform is a bit misused term.

It's really price cuts what you talk about, one-sided price cuts on the part of the authorities.

And what we do when we make the outlook for next year is, of course, we look at what's been happening, what do we know is happening right now.

All of that has an additional effect next year.

So of course we have the whole US healthcare reform.

That's not a delta, so to speak, but then we have other things been happening, as Jesper has already shown.

Some of that's been happening during this year, so that kicks further into next year, and some of it we know is being sort of implemented right now.

So you will see in our guidance a negative delta also coming from price cuts or healthcare reform, whatever you want to call it, next year, and that is built into the guidance what we expect will be happening.

But we're not building sort of a dramatic scenario where something dramatic happened on price control in the US, for instance, all of a sudden.

That's not part of it.

And then I think, Mads, you could address the hemophilia portfolio.

Oh, right, that was actually a hemophilia question.

Thanks.

So we're speaking patients with severe hemophilia A that have had prior exposure to Factor VIII based products.

It's a global multi-center trial, of course, and there will be at least 100 patients in the prophylaxis arm, and there will be, let's say, a dozen or so that will be treated on demand.

And as part of the prophylaxis regime, you will also see, of course, that patients will be offered surgery, if and when appropriate, and that will also be an element in the program.

The endpoint will be like co-primary, so you both look at inhibitor formation above a certain level, maybe 0.6 Bethesda units or so.

And that has to be combined with the annualized efficacy as measured by [bleeding] rate on an annual basis compared up against historical controls agreed upon between us and the major agencies all over the world.

We will additionally, of course, be measuring bleeding efficacy, and when that happens, we do that with the four-step scale, where excellent and good responses are successes, and you can say poor and no responses are failures.

So it's quite a lot of things that are ongoing, or will be ongoing in that trial.

It's pretty classical hemophilia program we've discussed with the pediatric committee [under] CHMP in Europe.

Their view on the addition of kids, these are primary boys and men who are above 12.

But there is a pediatric commitment that we have discussed, and I won't give a lot of detail on that, but of course you can, for Factor products, have situations where it's very important to go into negotiations with the regulators sooner rather than later so that you don't get hit by the inability to act or to get approval.

It's home-based treatment.

The first few doses, two doses, will typically be given as infusions at the hospital-based setting, which is classic in this kind of scenario.

And that's how it is.

We'll start in the first half of next year.

Who knows?

If we're clever and good, it could be completed by the end of the ensuring year.

So we are towards the end of '13 before such a trial can complete.

Recruitment is heroically difficult in hemophilia.

That being said, for hemophilia it's somewhat easier for hemophilia than for hemophilia B where, again, it may be slightly easier than for inhibitor patients.

Did that cover?

Okay.

And then just adding to the comments that Kare was giving on the healthcare reform, and then on top of that, a pre-assumption is also that the turnover that we have in the US from Prandin, there we have a ruling from the Supreme Court coming probably most likely in the first half of next year.

And although not being specific, we have assumed that generic competition will occur to Prandin in 2012, although linked with a lot of uncertainty.

But that's been assumed.

Sachin Jain, Merrill Lynch.

Just two question, one a real top-down question.

Given your aggressive signaling on pricing US insulin market, do you think behavior has returned to normal, as would be expected of a duopoly, and a bit more predictable from here, or are we still in a situation where we don't know what Lilly are up to?

And then, just secondly, a follow-on from a question asked yesterday, just qualitative comments on the phase I data for the Factor VIII, how do you think it's potentially differentiated.

And then if I could just check in the same question for the Factor IX, what profile are you looking for for both compounds.

Thanks.

With regard to price competition in the insulin space in the US, we have to remember that insulin has been a very price competitive product for more than 80 years since it was discovered.

And it was not a patent product from the beginning.

It was industrialized competition on price, quality, safety of supply and so on that really determined who were the winners.

And we still have good old-fashioned price competition there.

As I said before, many, many contracts are on a revolving basis.

I don't see any major dramatic change.

You could say we had a situation where Lilly got away with the Walmart deal and a few contracts.

We've gotten away with a few contracts now.

I expect to see further tough price competition in the US, but that has been the name of the game for a long time in the human insulin part.

Of course, when you talk modern insulin, you talk new insulins, it's much more a question about the perception among the healthcare professionals, is this a superior product or not.

Well, Sachin, if -- I guess the question is regarding us versus Biogen Idec, yes.

In that regard, fundamentally, there's the biochemical difference, so to speak, that -- or chemical difference, that they're working with FC constructs, fusion proteins, so that is where the Factor VIII or IX molecule is coupled to the FC domain of an antibody, as you know, the same concept as etanercept, Enbrel, whereas we are using (inaudible).

We're essentially attaching to the activation peptide of this huge molecule, whether it's VIII or IX, the pegylation, or the peg that actually causes the prolonged action profile.

And that is then cleaved, upon activation from Factor VIII or IX, to VIIIa and IXa so that we're releasing the native protein.

So that's kind of the difference.

In terms of half-lives and expectations for Factor IX, there's a sort of good news because it appears to me that we have about twice the half-life, close to 100 hours, where they seem to be about 50 hours.

So in principle, a [90P] could be administered even less frequently than by weekly infusions.

We have, however, elected to go for the combination of an infrequent once-weekly dosing and achieving a high trough level, okay, because with a very long half-life, which is essentially suggesting up to a bimonthly profile, you will, if you give it on a once-weekly basis, by definition end up with a higher trough level, which protects the patients against breakthrough bleeds.

As regards in ATP, it's a more blurred picture.

To be quite frank, the prolongation that we have in the clinic looks pretty much as what has been announced by our colleagues at Biogen Idec.

So not flabbergasting, but still a increase from around 11, 12 hours for native Factor VIII to around 20 hours.

So it's meaningful.

Is it true once-weekly?

I wouldn't bet on it.

On an individual basis, though, we know that hemophilia doctors tend to, in a real-world setting, individualize therapy.

For some patients, it may well be once [weekly].

Marietta Miemitz, Societe Generale.

A couple questions, please.

The first one is on marketing of modern insulins in the US.

It just seems that this market segment is particularly detail-sensitive and that, over the last 12 to 18 months, the major players have really stepped up their marketing efforts.

So I was just wondering if you can quantify the percentage increase in US marketing spend, or a number of sales reps behind Levemir over that period?

And would you say that the marketing has now stabilized at that high level, or should we actually expect continued margin pressure in that particular segment of the US modern insulin market?

And my second question relates to China.

I was quite intrigued by a comment in yesterday's conference call that you're also losing some share to the local producers.

And I was wondering if you could just share some color around the circumstances surrounding that, because I think that, for much of the past 10 years, you've actually been gaining share from the local producers because people there just trust the Western brands much more.

So I was just wondering if this was a one-off, or if there's actually a shift in the Chinese market dynamics where, for some reason, people now feel more comfortable with the local products and, at the same time, have become more price-sensitive, and if you see that playing out on just insulins or a wider segment of the healthcare markets in China.

Thank you.

Yes.

I'll address the US, and then Jesper will address the China question.

The modern insulin detailing and promotion in the US has actually changed but for maybe a different reason than the obvious one you might think.

It is so that, when we launched Victoza, we went sort of all-in on promotion and detailing of Victoza, which is what you would normally do when you have a new product that can be the category leader coming into the market.

So all our sales force was really allocated to Victoza for about half a year in the US.

That is, of course, not the situation you have on a stable basis, going forward.

So we've reverted back to having part of our sales force promoting Victoza, part of our sales force promoting modern insulins, and in some cases it's a question of first and second positioning, and so on.

But that means that, when you look at the numbers, it looks as if there's been a huge increase in detailing of Levemir and modern insulins.

But actually we've just returned to a normal level, so you should not expect that there will be any further increase in the promotion of modern insulins.

On the other hand you should expect that, when we launch Degludec, you will see we go all-in with Degludec for a while, and then we return to a stabilized situation again.

And then over to you, Jesper.

Yes.

It's not so that I don't trust that Kare knows our Chinese market inside-out.

It's just more that he was not sitting in at the conference call, so he -- maybe not had full familiarity with the comment that was made.

And I think it was Lars Rebien that was just alluding to that part of the weakness that we'd seen in third quarter was also relating to that they're in a few provinces in China had been bidding for who was going to supply the human insulin part of those provinces, and I think it was one or two of those provinces where one of the local producers had actually won a contract and, hence, it was contractually-based tender-based bidding for human insulin volumes that was won by one of the locals.

So it was not in any way trying to indicate that the competitive profile of the local producers had in any way improved.

So that hopefully clarifies that.

Next question, please?

We'll take Mark.

Thanks, Mark Purcell from Barclays Capital.

Could you discuss, for Victoza in the US, how you hope to increase your share of new patient starts above 60%?

Obviously this is an area where you've been thinking about potential rebates and other strategies.

Secondly, is there evidence in US that Lilly is discounting on analogs or looking to discount Humalog to try and gain market share?

Obviously I understand the situation in human insulin.

And [Mads], could you update us on Victoza and obesity?

I'm just trying to understand, in the current payer environments, how you see the value proposition of that product.

Yes, let me start by Victoza and the situation in the US.

We are seeing, you could say, very strong ongoing uptake of Victoza, and you're right, we're having a capture rate of above 60% in the GLP-1 segment.

Our strategy really is to position Victoza in early type 2 diabetes therapy, so after metformin failures.

We have not been sort of having a campaign going straight after Byetta, despite the fact that we have sort of a clinical superiority proven.

We have been going after expansion of the GLP-1 segment.

That will continue to be our strategy.

We hope to keep on expanding the GLP-1 segment.

Actually, right now, so the Victoza scripts out of total diabetes therapy scrips in the US, it's less than 1%.

So it's a low volume of patients, you could say, and it is extremely well perceived.

And if we take some inspiration from our other international markets, then we can see that this 1% volume of patients can go significantly higher what we've seen in several European markets.

So we are very optimistic that, by consistent messaging on the early use of Victoza in type 2 diabetes, we'll be able to grow the volume of Victoza for quite some years to come.

Then there was a second question regarding price competition on analogs in the US marketplace and Lilly's behavior there.

Again, I have to reiterate that there are many, many managed care organizations in the US.

They all get different levels of discounts from us, from Lilly and so on, and discounts are also given on modern insulins, on insulin analogs.

It's been the case since ever they were launched.

We don't see any significant dramatic changes here.

We see increasing discounts to Medicaid and Medicare for various reasons, including the mechanisms about CPI adjustments and so on.

But we don't see any sort of significant and dramatic change.

And then the last part, which I guess I can say the commercial part, and then maybe, Mads, if you want to say something about the [science]?

Of course, just a comment on the competition for analogs in the US.

The competition that occurred had primarily occurred in the fast-acting segment, and currently you have an [abnormal] situation in the fast-acting segment, as there is disruptions in supply to the third brand on the market.

So that may cause I think a more cautious behavior currently, but we'll have to see.

But there is some disruption in the market currently occurring.

Yes.

I mean, it's public knowledge from FDA and EMEA that there's a shortage of Apidra in prefilled pens and cartridges due to lack of supplies from Sanofi to the marketplace of their short-acting insulin worldwide.

The last question on liraglutide in obesity, the thinking from a value perspective is to position it not in the broad obesity segment but in a narrow segment where we're talking morbidly obese people with comorbidities.

So we're thinking about people with a BMI above 35 and comorbidities such as hypertension and so on.

We are thinking about linear pricing to our current liraglutide, which means a relatively high daily treatment cost, and we're thinking about cost benefit ratios, which are still very, very attractive due to severe condition of this group of patients.

And this group of patient is, of course, smaller than the broad obese population but is still a significant number of potential users, and they will get very significant clinical benefits we expect from the use of liraglutide.

It's Keyur Parekh from Goldman Sachs.

This was just going back to my question yesterday on FX.

Thank you for explaining the moving parts on the P&L.

But on the deferred hedging gains as of the end of June was DKK700 million, and as of the end of September that's negative DKK550 million.

Can you help us understand the swing of DKK1.2 billion, kind of what should we expect, going forward, on that?

Yes.

It's quite a massive swing, but it really comes back to the level of currencies we had.

I think the first expectation was given down at something like 517 for the US dollar when we gave it at the -- or when we closed the accounts of the 30 of June, the number you were referring to was the forward -- or the deferred income recognized FX contracts.

That was not put into the books as per 30 of June.

Of course, the number was different when we actually gave the prediction then in August, then we based it on current rates in August.

Likewise, the number you're referring to, which is now at the DKK550 million in deferred losses which have not yet been recognized, that was the number as per the 30 of September.

And there the US dollar rate was then up at something like 550 to the Danish kroner.

So you had a massive swing between the two point on the US dollar.

And when we're talking hedging and Novo Nordisk, you would always be able to account for, I'd say, 60% to 70% of that whole swing just solely from the movement in the US dollar.

Now then, what happens between the 30 of September and then until us giving the expectation now on the 24 of October or using the rate on the 24 of October is again a new movement of the currency because, between then, the dollar moved from 550 30 of September and then down to 24 of October, where we were using 537, as I showed on the slide.

So when we say in the forecast for 2012 that we have approximately DKK200 million of unrecognized losses, that's the old DKK500 million which has dropped to that level because of the decline in the US dollar, the losses have become smaller.

And that DKK200 million is more or less exactly equivalent to the forward losses we have as per 24th of October, and they can all be related to 2012.

Was that clear?

That's fine.

Thank you.

I'm sorry to harp on this CVS contract, but you made a comment that there are a lot of managed care organizations in the US, which is accurate, but CVS isn't one of them.

So they obviously -- Lilly didn't give a lot of detail on this, but was the -- what were the product wins on?

Was it just on the human side, or was it also on analogs and moderns?

And was the win on the drugstore side of the business or the PBM side of the business?

Yes.

The reason why I answered a little vague is that we basically don't want to go into details about specific contracts and explain too much about the tactics and how we do that for obvious competitive reasons.

But what I can say is it was a broad contract with CVS, and that it constituted of many different products.

But it was not (inaudible) structured to how it has been in the past, so it was the same kind of negotiation we had with them as we've had in the past, and we just came out as the one that had apparently, in the end, the best offer, and that's why we won it.

Okay.

And just the reason why I asked about a couple times is Lilly -- the contract with Walmart was different (inaudible - microphone inaccessible)--.

--Would (inaudible) the mic?

I'm sorry.

That contract was different because they came out with a branded Walmart insulin, which was obviously a change.

So I'm just wondering if there was -- okay.

Yes, I get your point.

No, there was no dramatic change in this contract compared to previous contracts between us and CVS.

Okay, thank you.

I'm sorry to [harp] back to healthcare reform and issues along those lines, but are you expecting there to be further discounts because more people end up in the donut hole next year?

Is it likely that you're planning for Lilly being just a stronger competitor, going forward?

You know there's going to be several of you out there, or is it something to do with price competition, Degludec comes in at the back end of next year and it has to have a price discount or something like that?

I mean, you can understand why people are concerned that you -- the expectation, rightly or wrongly, is that this year is a bigger year for price cuts, austerity, whatever it's called, and that next year some of that should annualize out so that, whatever the impact is this year, it shouldn't be quite as much next year, and yet next year, with the exception of Prandin, looks like it should be a very good year, and yet you're being very cautious.

So people are wondering if there's something that they're not seeing in there.

I'll give it another shot, then.

I think anyone giving a prediction looking at 2012 in today's financial environment and knowing the challenges that the public officers have with their budgets everywhere I think would apply a cautious nature when you were giving the outlook.

You are right in your assumption regarding US, that there is a continuous effect of the healthcare reform, and the actual cost of the US healthcare reform for Novo Nordisk will be higher in 2012 than what it is in '11, but you're also right that the most significant relative impact compared to the year before was occurring in 2011.

So the extra effect there is in '12.

That has been built into the model.

We have also assumed, as I said, for Europe, and I went through it, that there will be a continuation of impact in Europe, and then we are seeing that, as we've only just seen in the third quarter the impact in China, there will be an annualized effect of China, and we also think there will be impacts in other parts of the developing markets pricing-wise.

I think they're taking some inspiration from what has happened in other markets.

And then I think the relative growth contribution from Victoza, everything else being equal, if you do the math, will also be lower.

And you have to take that into account when you look at the growth numbers.

So I think that's the best we can give.

And then I hope we can give you a more clear outlook when we get to -- when we get here back in February.

So I hope that was what we could do for now.

I thank you all for your interest in Novo Nordisk, and thank you for the time.